The Auditor General revealed that Exim bank of China may take over the Mombasa port if Kenya fails to service the loan it took to build Standard Gauge Railway (SGR).
In a letter to the Kenya Ports Authority (KPA) managing director, the auditor noted that the port's revenue was pledged to pay Kenya's debt to the Chinese bank.
"The payment arrangement agreement substantively means that the Authority's revenue would be used to pay the Government of Kenya's debt to China Exim Bank if minimum volumes required for consignment are not met as per schedule one.
"The China Exim bank would become a principal in over KPA if KPC defaults in its obligations and China Exim bank exercise power over the escrow account security," the report read in part.
The KPA assets are exposed since the Authority signed the agreement where it was referred to as a borrower under clause 17.5 and any proceeding against its assets by the lender would not be protected by sovereign immunity since the government waived immunity on the Kenya Ports Assets by signing the agreement.
"The agreements is biased since any non-performance or dispute with the China Exim bank (the lender) would be referred to arbitration in China, whose fairness in resolving the disagreement may not be guaranteed," the letter stated.
Following the revelations, the Auditor General recommended that KPA disclose the pertinent issues and the risk related to the guarantee in the financial statements.
"Confirm in the management representation letter the KPA assets are not a floating charge/ guarantee to the Government of Kenya loan as a borrower," the auditor advised.
An official from the office of the Auditor General spoke to Kenyans.co.ke on the phone stating, "The audit process is still in process and we cannot confirm or deny its authenticity."
Earlier in the year, a report by Kenya National Bureau of Statistics (KNBS) revealed that Kenya's debt to China had increased by 52.8 percent to Kshs478.6 Billion in 2017 compared to Kshs313.1 Billion in 2016.
The report, therefore, divulged that in the past one year, Kenya's economy accrued debt from China of about Ksh165 Billion.
It was further established that the world's second-largest economy controls 66 percent of Kenya's total bilateral debt, which stood at Kshs722.6 billion as at June 2017.